Medicare and Medicaid

The funding for the implementation of EHRs will be administered through incentive payments via Medicare and Medicaid for hospitals and healthcare professionals that implement compliant EHRs.

Medicare Incentives for Hospitals

The Medicare incentive payment structure is established where entities receive enhanced Medicare reimbursements starting in 2011, with up to $11 million being made available for each qualifying hospital over a four-year transition period.

The law also creates an incentive for hospitals to implement EHRs by initiating a declining Medicare reimbursement rate for those hospitals that fail to implement “meaningful use” (see definition below) of EHRs by 2016.  This approach creates an added incentive to facilitate industry-wide implementation of EHR use sooner rather than later. The criteria for compliance with the requirement is that hospitals “meaningfully use” EHRs, thereby qualifying for incentive payments. Each must implement a certified EHR system that enables: 1) clinical decision support, 2) clinical physician order entry, 3) the exchange of data, 4) and quality reporting.

Medicare Incentives for Healthcare Professionals

The Medicare incentive payments for healthcare professionals are estimated to be between $44,000 and $64,000 per qualified provider for the “meaningful use” of an EHR.  As with the reimbursements for hospitals, there is a diminishing reimbursement over time, and ultimately a penalty for late adopters.  The penalty takes the form of a reduction in the normal reimbursement schedule by 2016 for those who are not “meaningful users” of a certified EHR.  EHR criteria for healthcare professionals include: 1) e-prescribing, 2) the ability to exchange data, 3) and the ability to conduct quality reporting. 

Payments are increased by 10% for providers located in a “health professional shortage area.”

Exclusions

The legislation clearly excludes hospital-based professionals (such as radiologists, pathologists, etc.) who work in an in-patient facility.  There is an exception for professionals employed by a hospital, but who work in an ambulatory clinic or have billing arrangements where physicians submit claims to Medicare together with hospitals or other entities.  The test for this is based on the setting where the provider furnishes services rather than billing or employment between a provider and hospital or other entity.

Medicaid Incentives

The federal government pays a share of every state’s spending on Medicaid. The federal government also makes payments to states for certain Medicaid-related administrative expenditures, but certain functions receive higher amounts. The Social Security Act (SSA) authorizes a 90% match for expenditures attributable to the design, development or installation of mechanized claims processing and information retrieval systems referred to as Medicaid Management Information Systems (MMISs) and a 75% match for the operation of MMISs that are approved by the Secretary.

The ARRA amended the SSA to authorize a 100% federal match for a portion of payments to encourage the adoption of EHRs (including support services and maintenance) to certain Medicaid providers who meet certain requirements. The state must prove to the Secretary that allowable costs are paid directly to the healthcare provider without any deduction or rebate, that the provider is responsible for payment of the EHR technology costs, that the user certifies “meaningful use,” and that the technology is compatible with federal administrative management systems.

Eligible providers would include: physicians, nurse mid-wives, pediatricians, and nurse practitioners who are not hospital-based and who have patient volume of at least 30% attributable to Medicaid patients. In order to be eligible, the provider would be required to waive any right to Medicare EHR incentive payments.

This provider group would be eligible for payments of up to 85% of their net allowable technology costs. However, the allowable costs of the purchase and initial implementation of EHR technology cannot exceed $25,000 or include costs over a period of five years. Annual allowable costs not associated with the initial implementation or purchase of the EHR technology may not exceed $10,000 per year or be made over a period of five years. Aggregate allowable costs, after application of the 85% adjustment, may not exceed $63,750.

Note: Since payments to eligible professionals will be sufficient to cover most or all of the costs of acquiring a certified EHR under the Medicaid incentive program, the law does recognize that some providers may be eligible to receive incentive payments under both Medicare and Medicaid, but they are required to choose one incentive payment program.

The following is a review of the key provisions of the Medicaid incentive program:

• Payments of up to 90% to states for reasonable administrative expenses related to the administration of payments to providers
• Allows for payments to states of up to 100% of costs for implementing EHR technology to be provided in the form of increased reimbursements to providers (including maintenance, training, adoption, operation)
• In no case shall the aggregate allowable costs exceed $25,000 with respect to a Medicaid provider for the purchase and initial implementation
• Additional costs are also not to exceed $10,000 per year over a period of no longer than five years; and not to exceed a total of $75,000 per provider

Acute Care Hospital Incentive Payments

Acute care hospitals with at least 10% Medicaid patient volume would be eligible for payments, as would children’s hospitals with any Medicaid patient volume. Payments to hospitals would be limited to amounts analogous to those specified for eligible hospitals in Medicare. Hospital limitations for Medicare and Medicaid are assessed on a proposal basis depending upon a hospital’s patient volume from each payer, so the ARRA does anticipate that certain hospitals could receive funding from both incentive programs.

Rural Healthcare Clinics and Federally-Qualified Health Centers Incentive Payments

Rural healthcare clinics, physician assistant-led rural clinics, and federally-qualified health centers with at least 30% patient volume attributable to Medicaid patients would also be eligible for Medicaid incentive payments at amounts to be determined by the Secretary.

Additional Medicaid Stimulus Funding (Not Related to HIT)

The ARRA provides increased Medicaid funding under the following provisions:

• A 6.2% across-the-board increase of Federal Medical Assistance Percentage (FMAP)
• FMAP payments to states for 27 months through Dec. 31, 2010 (projected to cost $86.7 billion)
• Reductions in state share for states with increases in unemployment rates would be 5.5%, 8.5%, and 11.5%. These percentage reductions would be applied against the state share after the hold harmless reduction and after an across-the-board increase of 3.1%
• Each territory would be allowed to choose between a regular FMAP increase of 6.2% along with a 15% increase in its spending cap, or its regular FMAP along with a 30% increase in its spending cap
• Prohibits states from receiving the temporary payment increases if they are not in compliance with existing requirements for prompt payment of practitioners
• Provides a 2.5% increase above the base rate for Disproportionate Share (DSH) Allotments in FY2009 and an additional 2.5% above the adjusted new base of FY2009 and in FY2010

The ARRA also extends moratoria on the following regulations:

• Targeted Case Management
• Provider Taxes
• School Based Services
• Outpatient Hospital Services